NEW YORK (The Deal) -- Dow Chemical (DOW) has rebuffed a suggestion by activist Dan Loeb to split the company in two, saying that an internal review has concluded that such an action would reduce the company's overall value.
Loeb's Third Point LLC on Jan. 21 disclosed a large stake in Midland, Mich.-based Dow, and called on the company to consider selling its petrochemical operations. The investor in his quarterly letter said Dow is Third Point's largest investment, but said that the company's shares have "woefully underperformed over the last decade."
Third Point did not disclose the size of its stake, but according to reports, the firm spent about $1.3 billion amassing Dow shares. The company is valued by the market at about $55.3 billion.
Dow in an addendum to its end of year investor presentation said its board, in conjunction with external advisers, determined that selling the petrochemical operations would negatively impact Dow's bottom line by eliminating certain economies of scale and cross-platform technology benefits.The company, without mentioning Third Point or Loeb by name, said that the review concluded that separating its petrochemical and specialty chemical assets "created no productivity or capital allocation improvements." The response was expected. Dow chairman and CEO Andrew Liveris on a Jan. 29 earnings call defended the company's current business mix. Third Point on Wednesday told reporters the firm was willing to sign a non-disclosure agreement to review and discuss the analysis that led Dow to its conclusions. Dow is no stranger to restructuring. The company in 2008 kicked off a transformation aimed at shedding lower-margin units and focusing on higher-priced specialty materials by acquiring Rohm and Haas Co. for $18.8 billion. In the years since, Dow has retained advisers to explore separation options for units totaling $5 billion in annual sales, including, in December, hiring bankers to sell its century-old chlorine operation. The company has also closed numerous plants and slashed jobs. The firm said Tuesday it would continue with that revamp. "Dow believes that the specific actions it has taken to transition Dow from a commodity-based model into a vertically integrated science company focused on specialty materials, agriculture, and specialty plastics, is the right strategy to maximize value for all of our shareholders in the short and long term," the company said in the regulatory filing. Loeb in his January investment letter criticized the existing strategy, calling the Rohm & Haas deal, which almost fell apart due to recession-related funding issues, "ill-timed."
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